Rmb Balassa - Samuelson Effect Test

The related problem of RMB exchange rate has been point of local and economic educational circles research, especially, after 2000 the pressure came from the United States and Japans' requesting RMB appreciation heated continuously, the problem of whether RMB under-estimation has already not only the theories research value, its policy meaning was obvious under the condition of currently our country foreign trade dependence continuously rises more. We find out that three factors lead the nominal exchange rates to deviate from PPP: movements in the relative price of tradable goods; movements in the relative weights of domestic and foreign non-traded goods; changes in the internal price ratio . Empirical work has demonstrated that Balassa-Samuelson hypothesis can be use to explain the movements in the internal price ratio in China, but not in USA. The main reason is that the growth rates of the Chinese wages are slower than the growth rates of labor productivity in tradable sectors, contrarily the growth rates of American wages are more than the growth rates of labor productivity in tradable sectors. In this paper we discuss the conceptions and characters of and the explanations and empirical tests about Balassa Samuelton Thesis internationally, analysis the relations, contradiction and and coincidence between Balassa Samuelton Thesis and Purchasing Power Parity theory. On this base we argue the problems existed in explaining Balassa Samuelton Thesis and the weakness of the equations of PPP, and give two improved equations. By using the result of the research we also discus the issues related to the exchange rate of RMB. Therefore, current our country of RMB the rate of exchange level did not reflect the economy of the our country development condition, RMB rate exchange rate exist some kind of distortion, and it is not agree with to match the Balassa Samuelson effect to maintain existing RMB exchange rate, also not agree with actual circumstance of match the our country.